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ATSG's Adjusted Pre-Tax Earnings Up 34 Percent

Dépèche transmise le 7 novembre 2011 par Business Wire

WILMINGTON, Ohio--(BUSINESS WIRE)--Air Transport Services Group, Inc. (NASDAQ:ATSG) today reported sharply improved third quarter financial results after excluding non-cash impairment charges. Highlights of the quarter compared to the prior year period included:

“We are managing ATSG for maximum cash flow even under uncertain economic conditions”

  • Pre-tax losses from continuing operations were $6.7 million while net losses from continuing operations totaled $4.8 million, or $0.08 per share diluted. Third-quarter 2011 earnings included $27.1 million in impairment charges related to reductions in business with DB Schenker that began in September, and $1.9 million in unrealized losses on derivative instruments related to the company's new credit facilities adopted in May.
  • Excluding impairment and derivative charges, pre-tax and net earnings from continuing operations increased by 34 percent and 22 percent, respectively, versus the third quarter 2010 results. Adjusted pre-tax earnings were $22.4 million excluding the impairment and derivative charges, up from $16.7 million in the third quarter of 2010, principally because of increased earnings from ATSG's freighter leasing business. Net earnings from continuing operations excluding those charges and their related tax effects were $13.9 million, up from $11.4 million in the third quarter of 2010. Net interest expense under the new credit agreement reached in May 2011 decreased $1.3 million for the third quarter compared to a year ago. Pre-tax losses for the quarter generated an income tax benefit of $1.8 million.
  • Third-quarter EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), adjusted for non-cash impairment and derivative losses, totaled $48.3 million, up 10 percent from $44.0 million in the third quarter of 2010. Adjusted EBITDA is a non-GAAP measure of financial performance. The definition and reconciliation of ATSG's third-quarter Adjusted EBITDA to GAAP net income is provided at the end of this release.
  • Revenues increased 17 percent to $195.5 million, including customer-reimbursed costs, with increases evident from each of the company's reported segments and other business units. Excluding reimbursements, ATSG's revenues increased 19 percent to $151.4 million.

“Our business model, which emphasizes balanced, market-sensitive assignments of converted freighter aircraft between long-term dry leases and shorter-term wet lease or ACMI agreements, continues to generate strong cash flows even in uncertain economic conditions,” Joe Hete, President and CEO of ATSG, said. “During the third quarter, our operating and cash flow returns remained strong despite the previously announced decision by our customer, DB Schenker, to phase out its dedicated air cargo network in favor of an outsourcing relationship with DHL. We are responding to those changes by reducing our costs, removing DC-8 and 727 freighter aircraft from service, and offering DHL access to additional 767 and 757 aircraft to meet their requirements related to their outsourcing relationship with DB Schenker.”

Operating Results

CAM Leasing

Cargo Aircraft Management (CAM) recorded pre-tax earnings of $16.2 million, excluding impairment charges, up 35 percent from $12.0 million in the third quarter of 2010. At the end of September, CAM had 58 freighter aircraft under lease, including 34 Boeing 767-200 and two 767-300 freighters. Of those thirty-six 767 freighters, 21 are under long-term lease to external parties, including two 767-200s leased to RIO Airlines of Brazil that entered service during the third quarter. CAM's second 767-300 freighter was deployed with an ATSG airline under an ACMI agreement in September, and another 767-200 was similarly deployed through an ATSG airline in October.

At this time, one Boeing 767-200 and one 767-300 are being converted to standard freighters. Another 767-300 passenger aircraft purchased in the second quarter, and a fifth 767-300 purchased in October will be converted to freighters and are expected to enter service in 2012.

CAM also purchased a 757-200 aircraft during the third quarter which is expected to complete its conversion to standard freighter by year-end. Another 757-200 aircraft purchased earlier this year entered prototype conversion into a combination passenger/freighter aircraft (combi) for intended deployment with the U.S. military in the second half of 2012. Additionally, in October, CAM purchased another Boeing 757-200 passenger aircraft for its second combi conversion.

Upon the completion of these aircraft conversions, CAM will own thirty-six 767-200 freighters, five 767-300 freighters, three 757-200 freighters and two 757-200 combi aircraft in its fleet. CAM continues to pursue selective opportunities for adding mid-size aircraft to its fleet.

ACMI Services

Third-quarter revenues from ACMI Services were $118.9 million, excluding fuel and other reimbursed expenses, up 16 percent from the third quarter of 2010. Third-quarter pre-tax earnings from ACMI Services were $2.8 million, excluding impairment charges, compared with $3.4 million in the third quarter of 2010. Third-quarter results were impacted by training costs to transition DC-8 crews into the Boeing 767 aircraft due to DB Schenker's restructuring and lower revenues from the U.S. military as a result of maintenance related cancellations and contractual rate reductions.

Revenue-generating block hours for this segment increased by 6 percent compared with the third quarter of 2010. Block hours increased due to additional CAM-owned and ATSG-operated 767 freighters added in the last 12 months, plus hours generated by four DHL-owned 767 freighters leased and operated by ABX Air under its Crew, Maintenance and Insurance (CMI) agreement with DHL, and one 767-300 freighter leased from a third party for ACMI service. These increases were offset in part by block hour reductions related to the DB Schenker restructuring.

Other Activities

Revenues from other businesses rose 14 percent to $26.3 million before elimination of inter-company results. These businesses had an aggregate pre-tax profit of $3.7 million in the third quarter of 2011, compared with $3.1 million a year earlier. Results reflect improved earnings from Airborne Maintenance and Engineering Services, ATSG's MRO business, compared with the prior year.

Impairment Charges

In late July, DB Schenker announced its plan to adopt a new business model in September leading to the phase-out of its North American dedicated air cargo network operated by ATSG. As a result, sixteen ATSG aircraft - eight DC-8 and eight Boeing 727 freighters - operated by Air Transport International

(ATI) and Capital Cargo International Airlines (CCIA) in DB Schenker's North American network were reduced to five DC-8 and four Boeing 727 aircraft effective September 2. On October 23, DB Schenker canceled scheduled operations for the remaining DC-8 aircraft, but retained two DC-8s as spare aircraft and the four scheduled Boeing 727 aircraft.

ATSG's impairment testing during the third quarter examined the expected cash flows from its Boeing 727 and DC-8 aircraft, and the value of goodwill and customer relationships of its associated entities. With the support of independent advisers, ATSG determined that the carrying value of its 727 and DC-8 assets, recorded goodwill and customer relationship intangible assets was overstated, resulting in third quarter pre-tax charges totaling $27.1 million.

Outlook

DB Schenker Relationship

Since September, DHL has provided DB Schenker with a portion of its air-cargo services via DHL's hub at the Cincinnati/Northern Kentucky International Airport. It's ATSG's understanding that DHL and DB Schenker are discussing a potential long-term outsourced air cargo agreement beginning in 2012. We expect that ABX Air, as an operator of DHL's U.S. air cargo network, and potentially other ATSG airlines, would continue to provide airlift and route coverage that DHL requires to serve DB Schenker's customers. Regardless of the outcome of those discussions, however, ATSG is marketing for sale its DC-8 and 727 freighter fleets and associated parts, excluding four DC-8 combi aircraft serving the U.S. military, and is reducing its workforce and operating expenses as appropriate.

“We are managing ATSG for maximum cash flow even under uncertain economic conditions," Hete said, "emphasizing long-term leases of freighter aircraft as opportunities arise, but also capitalizing on our unique aircraft, crew, maintenance and insurance (ACMI) capabilities in the mid-sized freighter category, and our ability to offer related incremental heavy maintenance, cargo handling and logistics services to meet continuing and seasonal market requirements. We are managing expenses very carefully while pursuing our growth goals through continued investment in more modern, mid-sized aircraft. As we retire our DC-8 and Boeing 727 freighter fleets, we expect to reduce our annual capitalized maintenance expenditures by $15-20 million starting in 2012. Further, we continue to project annual Adjusted EBITDA to exceed $200 million in 2012."

Conference Call

ATSG will host a conference call on Tuesday, November 8, 2011, at 10:00 a.m. Eastern time to review its financial results for the third quarter of 2011. Participants should dial 866-314-5232 and international participants should dial 617-213-8052 ten minutes before the scheduled start of the call and ask for conference pass code 20493963. The call also will be webcast live (listen-only mode) via www.atsginc.com and www.earnings.com for individual investors, and via www.streetevents.com for institutional investors. A replay of the conference call will be available by phone on Tuesday, November 8, 2011 beginning at 2:00 p.m. and continuing through Tuesday, November 15, 2011, by dialing 888-286-8010 (international callers 617-801-6888); use pass code 90780875. The webcast replay will remain available via www.atsginc.com and www.earnings.com for 30 days.

About ATSG

ATSG is a leading provider of aircraft leasing and air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air cargo lift requirements. ATSG, through its leasing and airline subsidiaries, is the largest owner and operator of converted Boeing 767 freighter aircraft in the World. Through its principal subsidiaries, including three airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, aircraft maintenance services, airport ground services, fuel management, specialized transportation management, and air charter brokerage services. ATSG's subsidiaries include ABX Air, Inc.; Airborne Global Solutions, Inc.; Air Transport International, LLC; Cargo Aircraft Management, Inc.; Capital Cargo International Airlines, Inc.; and Airborne Maintenance and Engineering Services, Inc. For more information, please see www.atsginc.com.

Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve risks and uncertainties. There are a number of important factors that could cause Air Transport Services Group's ("ATSG's") actual results to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, changes in market demand for our assets and services, the cost and timing associated with the modification and deployment of Boeing 767 and Boeing 757 aircraft, the availability and cost to acquire used passenger aircraft for freighter modification, ATSG's continuing ability to place newly-modified aircraft into commercial service, ABX Air's ability to maintain on-time service and control costs under its operating agreement with DHL, the rate at which DB Schenker restructures its U.S. air cargo operations and ATSG's ability to redeploy or sell surplus aircraft resulting therefrom, and other factors that are contained from time to time in ATSG's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers should carefully review this release and should not place undue reliance on ATSG's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this release. ATSG undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

           
 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
REVENUES $ 195,480 $ 167,726 $ 563,668 $ 488,781
 
OPERATING EXPENSES
Salaries, wages and benefits 48,872 41,074 140,546 129,830
Fuel 41,829 33,745 130,145 98,203
Depreciation and amortization 22,616 22,758 68,865 65,310
Maintenance, materials and repairs 23,740 22,446 67,426 57,355
Landing and ramp 5,691 5,419 18,128 17,830
Travel 7,575 5,667 20,803 16,383
Rent 5,872 4,881 16,946 12,257
Insurance 2,720 2,130 7,464 7,122
Impairment of goodwill and acquired intangibles 5,079 5,079
Impairment of aircraft and related equipment 22,065 22,065
Other operating expenses 10,931   8,378   29,481   26,956  
196,990 146,498 526,948 431,246
       
OPERATING INCOME (1,510 ) 21,228 36,720 57,535
OTHER INCOME (EXPENSE)
Interest income 29 83 128 241
Interest expense (3,304 ) (4,641 ) (10,944 ) (14,424 )
Write off of unamortized debt issuance costs (2,886 )
Unrealized gain/(loss) on derivative instruments (1,881 )   (5,437 )  
(5,156 ) (4,558 ) (19,139 ) (14,183 )
       
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (6,666 ) 16,670 17,581 43,352
 
INCOME TAX BENEFIT(EXPENSE) 1,840 (5,282 ) (7,246 ) (15,299 )
       
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (4,826 ) 11,388 10,335 28,053
 
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX 24 (230 ) (74 ) (58 )
       
NET EARNINGS $ (4,802 ) $ 11,158   $ 10,261   $ 27,995  
 
EARNINGS (LOSS) PER SHARE - Basic
Continuing operations $ (0.08 ) $ 0.18   $ 0.16   $ 0.45  
Discontinued operations        
NET EARNINGS (LOSS) PER SHARE $ (0.08 ) $ 0.18   $ 0.16   $ 0.45  
 
EARNINGS (LOSS) PER SHARE - Diluted
Continuing operations $ (0.08 ) $ 0.18   $ 0.16   $ 0.44  
Discontinued operations   (0.01 )    
NET EARNINGS (LOSS) PER SHARE $ (0.08 ) $ 0.17   $ 0.16   $ 0.44  
 
WEIGHTED AVERAGE SHARES
Basic 63,334   62,811   63,267   62,805  
Diluted 63,334   64,202   64,078   64,076  
 
           
 

 AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 
September 30, December 31,
2011 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,779 $ 46,543
Accounts receivable, net of allowance of $1,207 in 2011 and $1,090 in 2010 42,360 40,876
Inventory 8,685 7,205
Prepaid supplies and other 10,667 10,132
Deferred income taxes 11,977   12,879  
TOTAL CURRENT ASSETS 102,468 117,635
 
Property and equipment, net 742,233 658,756
Other assets 19,902 25,227
Intangibles 6,458 9,259
Goodwill 86,980   89,777  
TOTAL ASSETS $ 958,041   $ 900,654  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 50,698 $ 40,558
Accrued salaries, wages and benefits 24,824 24,145
Accrued expenses 11,894 12,144
Current portion of debt obligations 13,085 36,591
Unearned revenue 11,935   10,794  
TOTAL CURRENT LIABILITIES 112,436 124,232
 
Long-term debt obligations 323,055 265,937
Post-retirement liabilities 101,862 116,614
Other liabilities 57,991 52,048
Deferred income taxes 47,475 39,746
 
STOCKHOLDERS’ EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock
Common stock, par value $0.01 per share; 75,000,000 shares authorized; 64,069,154 and 63,652,228 shares issued and outstanding in 2011 and 2010, respectively 641 637
Additional paid-in capital 520,152 518,925
Accumulated deficit (160,990 ) (171,251 )
Accumulated other comprehensive loss (44,581 ) (46,234 )
TOTAL STOCKHOLDERS’ EQUITY 315,222   302,077  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 958,041   $ 900,654  
 

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED PRE-TAX EARNINGS AND ADJUSTED PRE-TAX EARNINGS SUMMARY

FROM CONTINUING OPERATIONS

NON-GAAP RECONCILIATION

(In thousands)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
Revenues:
CAM Leasing